A Real Estate Implosion Is on the Horizon

A Real Estate Implosion Is on the Horizon

Behind the propaganda and the mania is but a single house – and it’s a house of cards that’s teetering

By Gord Goble, Coquitlam Now May 25, 2012

Is there a housing bubble in the Lower Mainland? Housing zeppelin is more like it. Bubbles, after all, are soft and cute and harmless. Zeppelins, conversely, hurtle into the ground, spewing flaming wreckage in all directions.

And that’s precisely what we’re about to witness in Metro Vancouver.

Consider the factors that have pushed our prices so absurdly high that the average family now spends 70 per cent of pretax income to buy and own a home. Consider that we’ve already rocketed past the danger zone of most cities in the disastrous American run-up. Consider all that’s conspired to morph our region into the top two overpriced real estate markets in the world.

It starts at the top, with the federal government and the Bank of Canada. Despite doling out repeated warnings over our addiction to credit and our per capita debt, which now stands at a deeply troubling $1.50-plus per $1 of disposable income, those in charge have continued to facilitate easy mortgage borrowing and a credit culture.

Why? For one, housing-related industries account for a quarter of our GDP. We’d look far less impressive globally were we not buying and selling obscenely expensive homes to one another.

And it filters down from there. The media, supported so heavily by real estate industry advertising (“This segment brought to you by Re/Max”), plays up self-serving industry propaganda and consistently portrays deceptive PR stunts as “news,” while blissfully ignoring realities such as plummeting sales and mushrooming inventory in former hot spots such as Richmond and Vancouver West, and an already tanking market in key neighbouring zones such as the Okanagan and the eastern Fraser Valley.

Our banks and lenders, meanwhile, squash accusations of subprime lending (loaning to high-risk borrowers – the same practice that helped crush millions of American families) while actively participating in it.

Land developers literally work overtime to catch the end of the mania and the correspondingly sky-high valuations. Realtors pump the “Buy now or be priced out forever” mantra and work to falsely convince us offshore Chinese are grabbing

everything in sight. Ultimately, locals are inundated from all sides with stories of unicorns and pots of gold and wrongly believe the pyramid scheme of the past decade will somehow, illogically, continue forever.

But, like The Matrix, not all is as it seems. When the smoke clears, when developers have glutted the entire region with product (they’re almost there – just look around your neighbourhood), when realtors – mere salespeople – are no longer rock stars and pseudo-financial advisors, when the CMHC stops backing every high-risk borrower that comes calling (the corporation, run by a board with blatant ties to the real estate industry, will soon sport a much shorter leash), when newly introduced mortgage restrictions have sliced and diced the number of potential buyers, when interest rates have jumped from their emergency lows, when local TV producers stop airing dubious realtor PR stunts (helicopters purportedly loaded with offshore realtors, trumped-up condo lineups, marketers posing as investors) as hard news, when the market is flooded with the homes of bailing baby boomers seeking to fund their retirements, when the imaginary tidal wave of incoming Chinese is revealed as the mere speculative ripple it has been, when fatigued owners realize killer home payments devastate every other aspect of their family’s lives and, most importantly, when the mania dies (manias always die) and when real estate ownership is no longer the Holy Grail, there will be nothing left but you and decades of onerous payments on a crashing asset.

You will wonder what could have possessed you to overpay by 50 or 100 per cent for a creaking “old timer” in a lousy neighbourhood or a “new” slapped-up-in-a-month-by-handymen townhouse in a future ghetto, and you will curse the day you saw the pretty ad that compelled you to do so. Your realtor will not be there to console you, your lender will not hand you free money to extricate yourself.

Worse still, there will be no respite to those who, for reasons beyond their control, need to sell. They will do so at a grievous loss.

So – what do you do? If you bought near the peak (roughly mid-2011), and particularly if you’re feeling the strain already, contemplate selling – before the downward spiral picks up steam. If you’ve so far resisted the siren song, continue to resist. Instead, rent.

Renting gets a bad name in a transitory environment where even pizza delivery guys contemplate $300,000 condos, but remember: Renters are immune to exploding zeppelins. Renters are free to invest the money they saved by not buying. Renters do not surrender thousands per annum on property taxes, repairs, renovations, city utility bills and burdensome monthly maintenance fees. And renters can move without enduring the cost and hardship of selling. Your realtor will tell you “Renting is throwing your money away.” You can tell him he’s a liar.

Buying and owning a principal residence can be a smart move. But not here, not now. Not when mania is at the helm, not while deception remains healthy, and not when the long slide they don’t tell you about has already begun. Many will lose. Heavily. Don’t be a loser.

For more discussion on the realities of the local housing market, check out two of Greater Vancouver’s busiest housing blogs: Vancouver Real Estate Anecdote Archive (http: //vreaa. wordpress.com/) and Vancouver Condo Info (http: //vancouvercondo.info/).

 Gord Goble is a freelance photographer for The NOW and other newspapers, and a freelance writer for several U.S. tech publications. He lives in Surrey.

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COMMENT:
Just the Messenger…..
Those that buy now at these high prices are what we refer to as “Greater Fools”. A” Greater Fool” is the LAST buyer in an overheated market prior to the bubble burst…they paid top dollar before the collapse. They had Lesser fools before them.
The message is being aware of an UNstable market, with all indications it is far past peak price and THEN it gets interesting. A Greater Fool is not necessarily the last pre-sale purchaser, they may also have bought an existing unit only to find that they cannot flip it but may have to sell at a loss. Their Equity is but a memory now….
What usually happens is sheer panic as the wake -up call happens  as more people try to unload what all the objective evidence indicates is a  losing proposition.
Once the UNsold inventory levels reach certain critical mass points…..then it gets ugly…it indicates a very dubious market and treacherous waters ahead. These sellers determine the “asking “market price. Purchasers then become sharks….sensing blood …….looking for the more desperate sellers. It ends up being a fluuu$$$hhing noise.
In other words, once the peak has been reached, and the slide occurs, why would anyone buy until the the Bottom is reached ? In a Darwinian sense, the stupidest of the  Greater Fools have been absorbed….expect no more miracles.
QUESTION: Why  are they, the Developers  still building?
My guess is either pre – sold units(D-U-M-B) are finally being constructed as per their legal obligation…..or more Offshore money that is ignorant and oblivious to the SHTF here.
Regardless, once the bubble is popped……it is going to be a very VERY wild ride.
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